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State files action against rigged Internet penny auction site

Bidders on electronics and other goods auctioned on ArrowOutlet.com thought they were competing with other human beings. But, it turns out, they were often battling “bots,” according to a lawsuit filed by the Washington State Attorney General’s Office.

“Arrow Outlet programmed ‘bidbots,’ software that runs – that cheats – automatically,” Washington State Attorney General Rob McKenna said in a statement. “These programs created bogus bids that rigged results. And the bidbots sometimes won, allowing Arrow Outlet to walk away with all the bidders’ money and the auction item.”

The agency announced a settlement today with the so-called “penny auction” site. The company will shut down its auctions and provide restitution to its customers, McKenna said.

Penny auctions

Arrow Outlet’s site required bids to be purchased in “packs” that cost at least $20. Auctions would generally take place over a period of days or hours. When the remaining time ticked below 15 seconds, each new bid increased the remaining time by 15 seconds. But Assistant Attorney General Jake Bernstein, who handled the case, said Arrow Outlet’s bidbots were engineered to secretly intervene in the process.

In a consent decree filed today, Arrow Outlet is, among other restrictions, barred from running penny auctions. It agrees not to violate the Consumer Protection Act by misrepresenting online products and services.

The company will pay $20,000 in Attorney’s fees and $15,000 in penalties, with another $35,000 suspended as long as the company follows the terms of the settlement.

Restitution

Arrow Outlet will pay the Attorney General’s Office $50,000 to run an Arrow Outlet restitution fund for Washington state consumers.

Up to $250 will be available for each Washington state consumer who purchased bids between Aug. 1, 2010 through July 31, 2012. To receive restitution, Washington state consumers must contact the Attorney General’s Office and request a claim form. The claim form will be available in about two months.

This is the third penny auction site shut down by the agency. In 2010, the office negotiated a deal to shut down PennyBidr, which, like ArrowOutlet.com, programmed fake bids. In 2011, the agency stopped another penny auction site that was failing to deliver items to the winning bidder.

Note: This is a seattlepi.com reader blog. It is not written or edited by the P-I. The authors are solely responsible for content. E-mail us at newmedia@seattlepi.com if you consider a post inappropriate..